D (PVT) LTD v COMMISSIONER-GENERAL, ZIMBABWE REVENUE AUTHORITY

HIGH COURT, HARARE

[Opposed Application HH 378-16]

January 22 and June 22, 2016

FOROMA J

Revenue and public finance – Income tax – Interest on tax overpaid – Payment by Zimbabwe Revenue Authority of interest on amount of tax overpaid.

To avoid the consequences of garnishee, the applicant had paid the respondent under protest the sum of US$ 698 864.48 being interest demanded by respondent on the grounds that applicant had under estimated its provisional tax payments for the years 2009 and 2010. The applicant then challenged in the High Court the right of the respondent to payment of the interest in case no. HC 9715/12. The High Court held that the applicant had no obligation to pay the interest as the respondent was obligated to waive payment of that interest. In compliance with the High Court order to refund the interest, the respondent credited the applicant with the amount of that interest. Applicant then demanded interest on the unlawfully demanded interest by mounting the present application seeking an order that respondent pay to it interest on the sum of US$ 698 864.48 either at the 10 per cent per annum rate set out in the Income Tax Act [Chapter 23:06] or at the rate of five per cent per annum set out in the Prescribed Rate of Interest Act [Chapter 8:10].

Held, that essentials for the Commissioner of Taxes' liability for interest on the delay of the refund of overpayment are set out in terms of s 48 (3) of the Income Tax Act.

Held, further, that since the underlying cause of the overpayment of tax was an underestimation of the provisional tax by the applicant, the respondent is exempt from paying interest on the overpayment at the expiry of the 60 days period.

Case cited:

Meman & Anor v Controller of Customs & Excise 1987 (1) ZLR 170 (S), referred to

Legislation considered:

Income Tax Act [Chapter 23:06], ss 48 (3), 58, 207

Prescribed Rate of Interest Act [Chapter 8:10]

D Ndawana, for the applicant

T Magwaliba, for the respondent

FOROMA J:

The applicant in this matter filed an application against the respondent seeking the following declaratur – (1) it is declared that the respondent is obliged to pay interest to the applicant at the rate of 10 per cent per annum on the sums and for the period calculated in Annexure J to the founding affidavit. (2) it is ordered that the respondent pay the costs of this application. Annexure J is a schedule of interest calculation which is reproduced below:

D (Pvt) Ltd

D (Pvt) Ltd v ZIMRA HC 9715/12 Interest Refund

Interest CALCULATION

Date Paid

Refund Date

Amount

Days

Rate

Interest

11 September 2012

25/03/15

{mprestriction ids=″1,2,3,4,5″}

US$ 232 954.83

925

10%

US$ 59 036.50

12 October 2012

25/03/15

US$ 232 954.83

893

10%

US$ 56 994.15

13 November 2012

25/03/15

US$ 232 954.83

362

10%

US$ 55 015.63

US$ 698 864.49

US$ 171 046.29

The facts of this matter are largely common cause between the parties and relatively straight forward. The applicant summarises them as follows:

(a) In December 2011 the respondent contended that the applicant had under estimated its provisional tax payments for the years 2009 and 2010 and demanded the payment of interest on the under estimated provisions.

(b) The respondent calculated the total interest to be outstanding to be US$ 698 864.48 and demanded payment of that sum under threat of garnishing the applicant's bank account and thereby removing the sum of money from the applicant.

(c) To avoid the consequences of garnishee the applicant paid the demanded interest in three instalments in September, October and November 2012.

(d) Shortly after paying the last instalment and as a result of the applicant's view that it did not owe the respondent the interest demanded a position which the respondent persistently disputed the applicant challenged in the High Court the right to the respondent to payment of the interest demanded under case no. HC 9715/12. In its judgment delivered in case no. HC 9715/12 on 29 January 2015 the High Court held that the applicant had no obligation to pay the interest and held that the respondent was as a matter of law obligated to waive payment of that interest.

(e) The High Court judgment has not been appealed against by the respondent and remains extant.

(f) Respondent has credited the applicant with the amount of that interest but has resisted to pay the applicant interest on the amount which the applicant was wrongfully required to pay by the respondent in 2012.

The applicant stated the issue for determination as follows – Whether or not in the light of the ruling made by the High Court on 29 January 2015 the respondent is obliged to pay not only the interest unlawfully demanded from the applicant but whether in addition the applicant is entitled to receive interest on those unlawfully demanded amounts whether at the 10 per cent per annum rate set out in the Income Tax Act [Chapter 23:06] (″the Act″) or at the rate of five per cent per annum set out in the Prescribed Rate of Interest Act [Chapter 8:10].

The respondent captured the issues for determination by the court as follows:

(a) Whether or not the amount of interest paid by the applicant in 2012 and refunded by the respondent in March 2015 is a tax.

(b) Whether or not the respondent is liable to pay interest on the refund made to the applicant.

As can be observed the parties are agreed on the issue as cast by the applicant. That issue encompasses the respondent's issue number (b) as reflected above. It is important to note that the respondent's issue (a) above was not persisted with as the respondent conceded that the interest demanded by the respondent in the sum of US$ 698 864.49 was indeed a tax in terms of s 58 of the Act as read with s 207 of the Act. Therefore only one issue as indicated above remains for determination.

The respondent's argument is that there is no interest due on the refundable tax as such interest refund was made within the 60 days period from the date of claim in terms of the applicable legislation which for the avoidance of doubt is argued to be 14 March 2015 considering that the High Court judgment was only brought to its attention on 20 February 2015 after the applicant's demand of the unlawfully demanded interest on 19 February 2015. The applicant considers that the respondent is liable to mora interest in terms of the Common Law. The dispute between the parties relates to the interpretation of s 48 (3) of the Act. Section 48 (3) of the Act reads as follows:

″48 Reduced assessments and refunds

(1)-(2) ...

(3) The Commission shall pay interest, calculated at a rate to be fixed by the Minister by statutory instrument, on any amount of tax over paid that is not refunded by him or her within sixty days of the date when the taxpayer claimed the refund or the date of completion of the assessment, whichever is the later date, unless the overpayment was due to an incomplete or defective return or other error on the part of the taxpayer, and not to an error on the part of the commissioner.″

This subsection was inserted by Act 18 of 2004. Summarising the effect of the above quoted section counsel for the respondent submitted as follows:

″It is submitted that the above provision shows a shift from the Kristiansten position on the part of the legislature. The above section now makes it palpably clear that the commissioner is now liable to pay interest on any refund of tax that was over paid due to the error of the commissioner.″

This clearly is an express alteration of the Common Law position by the legislature which it has power to do.

The respondent's counsel further submitted that liability for interest on the part of the Commissioner arises only when the latter of either of two conditions are met namely (1) where the Commissioner fails to refund the overpaid tax within 60 days from the date of the refund is demanded by the taxpayer or where the commissioner fails to pay the refund within 60 days from the date of the completion of the assessment which would have established the refund due to the taxpayer. In principle the parties appear to be agreed on the interpretation to be given to the applicable section which for the avoidance of doubt is that the Commissioner of Taxes is obliged to pay interest on the overpaid amount if he or she delays in effecting the refund to the taxpayer beyond 60 days calculated from date of demand by the taxpayer or date of assessment giving rise to the refund. The parties however seem to have both overlooked a third condition to the payment of interest on account of the delay beyond 60 days. It is that the overpayment should not be due to an incomplete or defective return or other error on the part of the taxpayer and not to an error on the part of the Commissioner. Broken down to the essentials for Commissioner's liability for interest on the delay of the refund of overpayment in terms of s 48 (3) of the Act are:

(1) There has to be overpayment of tax by the taxpayer

(2) The overpayment of tax has to be refundable to taxpayer

(3) The taxpayer ought to have claimed refund of overpayment

(4) The Commissioner has failed to refund overpayment within sixty (60) days of claim by taxpayer or of the date of the assessment establishing overpayment and

(5) Overpayment is not due to an incomplete or defective return or other error on the part of the taxpayer and is due to an error on the part of the Commissioner.

The delay in the refund of any overpayment of tax by the commissioner will not attract liability for interest on the part of the commissioner in the situations where overpayment is a result of (i) an incomplete or defective return, (ii) other error on the part of the taxpayer. This is the plain and unambiguous meaning of the language of the legislature which must be given effect ordinarily (see Meman & Anor v Controller of Customs & Excise 1987 (1) ZLR 170 (S)) in the absence of any ambiguity.

What was the cause of the overpayment in casu‌

Put differently was the taxpayer in any way responsible for the overpayment either by filing incomplete or defective return or committing any other error. If the overpayment cannot be attributed to the taxpayer in any of the above respects then the next relevant question is ″was the overpayment due to an error on the part of the Commissioner.″

It is clear from the judgment of the High Court in HC 9715/12 on that the Commissioner erred in levying interest on the underestimated provisional tax. However the error of the Commissioner was as a result of an error on the part of the taxpayer in its estimation of its provisional tax. The underlying cause of the overpayment is therefore the underestimation of the provisional tax. It is important to realise that the error whether by the taxpayer or the Commissioner need not necessarily have been blameworthy.

The applicant was entitled to estimate his provisional tax as accurately as possible within an acceptable margin of error. There is no disputing that what prompted the Commissioner to levy on the applicant the overpayment was the error on the part of the taxpayer in its estimation of provisional tax due.

The applicant in case no. HC 9715/12 concedes that in its assessment of its provisional tax (per QPD's) it under estimated its tax liability by a margin of error in excess of 10 per cent.

This is apparent from para 6 of the applicant's founding affidavit in case HC 9715/13 in which the applicant deposed to the following:

″6. I set out hereunder and the circumstances in which this dispute has arisen in the knowledge that the respondent disputes some of these assertions. However, it is the contention of applicant that it is unnecessary for this Honourable Court to determine the circumstances behind the demand for interest but to merely accept as fact, (which is not disputed by the respondent), that in respect of both the 2009 and 2010 financial year there was indeed an under estimation of profits resulting in an under payment by the applicant of amounts of provisional tax when regard is had to the assessment made as to the total tax payable by the applicant in respect of both those years. In each of the years in question the margin of error in the under estimation of the amount of provisional tax payable exceeded 10 per cent and that the forecast of profits by the applicant did not fall within a 10 per cent margin of error.″

Clearly it is the error in the estimation of profits (under valuation of profits) with the consequent underestimation of the provisional tax payable which triggered the levying of interest (overpayment of tax) by the respondent. For this reason the respondent is exempted from paying interest on the overpayment at the expiry of 60 days aforesaid.

The findings I have made above make it unnecessary for the court to address the applicant's alternative argument that the respondent is liable to pay the applicant interest in terms of the Prescribed Rate of Interest Act.

In the result I make the following order:

IT IS ORDERED THAT:

(1) That the application be and is hereby dismissed.

(2) That the applicant pay the costs of suit.

Messrs Gill Godlonton & Gerrans, applicant's legal practitioners

ZIMRA, Legal & Corporate Services Division, respondent's legal practitioners

* Editor's Note - This judgment was overturned on appeal under case no. SC 398/16.

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